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Signing Bonus Question - 1099-NEC vs W2, solo Roth 401k

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  • Signing Bonus Question - 1099-NEC vs W2, solo Roth 401k

    I am starting my first attending job in Sept 2021 and received a $25,000 signing bonus at the end of 2020 (maybe Dec 22nd or so). I received a 1099-NEC for 2020 for it, on which no taxes had been paid by my future employer. My questions are:

    1) Is there any benefit to push for a W2 from my future employer to save on self-employment taxes or does the possibility of opening a solo 401k outweigh those?
    2) I don't expect to get significant 1099-NEC income in 2021 but I would like to contribute to a solo 401k in 2021 given I'm pretty sure I missed the deadline for 2020 when the bonus was paid (appears to be end of the calendar year of 2020). Does the fact my bonus was sent so late in 2020 help my case to contribute either to 2020 in a delayed fashion or to 2021?
    3) Do I have to pay the taxes on the bonus in 2020 given how late it was given to me? Would that help me with the issue in question 2 by deferring the 1099-NEC income for 2021 (if that's even possible)?

    Sorry if these questions seem stupid but I stumbled into them preparing my taxes for 2020 and wasn't sure what the best move was. Thank you in advance for any help!

  • #2
    1. No it’s already been paid to you as 1099 compensation for 2020.
    2. You can still open a solo 401k, but you had to make employEE contributions (elective deferrals​​​​​​) by the end of the calendar year (12/31). You can make employER contributions until the tax filing deadline but these are pre-tax, Roth can only be done as elective deferrals. You will need to complete Schedule C to calculate your allowable employER contribution. FYI the ETrade solo 401k plan allows In-plan Roth Rollovers so you can convert any pre-tax contributions.
    3. if you received the bonus in 2020 you owe taxes in 2020.

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    • #3
      1. GasFIRE is correct, you c/n change this unless you want to try to convince your future boss to amend their tax filings. But I don’t think you even want to, given your 2nd and 3rd questions.
        • Of note, since you were in training during 2020, you will have a bigger FICA tax hit than an attending who receives a signing bonus. If I had talked to you, w/h advised that they issue the ck a couple of weeks later to be taxed in 2021. Your contract reviewer should have caught that, but that door has closed.
      2. You have until the extended due date of 10/15/21 to open and fully fund a solo-k for 2020 (the deadline to open a solo-k changed to align with the SEP due date bg 2020).
        • Actually, you can make both er and ee contributions until that date unless you are an employee (S-corp, for ex). That is b/c W2s are due in Jan, tax deposits are due in Jan, etc
        • Sch C, however, must be filed by the due date of your return, including extensions (10/15).
        • Until your sch C is calculated, you won’t be able to know the exact amount of the allowable contribution, hence, the extended due date for contributing.
      3. Already answered above.
      Welcome to the forum - stick around and post!
      Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #4
        GasFIRE was partially correct.

        Under the SECURE ACT starting with the 2020 tax year, you now have until your tax filing deadline including extensions to adopt a one-participant 401k plan. However If you do not adopt the plan by 12/31, you can only make employer contributions by the tax filing deadline including extensions.

        The requirement to complete an employee deferral election by 12/31 in order to make employee deferrals was not changed by the SECURE ACT. Since it is not possible to have done so with a plan adopted after 12/31. No employee deferrals are allowed.

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